Sears Strategy Ups Majap/CE Quotient

Hoffman Estates, Ill.— Sears' Appliance and Electronics stores are but one element in chairman/ CEO Alan Lacy's new three-year plan to boost the company's top and bottom lines.

The recently announced strategy, which aims to hike operating income by 50 percent to $3 billion and double profits by 2004, is based on slashing costs, refining the product mix and revamping its full-line stores.

In the process, Lacy hopes to maintain Sears' unique merchandising niche, which is sandwiched between department stores above and discount chains below, while emulating the format and efficiencies of the latter.

"Our new approach to merchandising reflects a distinctive competitive positioning, a clear emphasis on home and family and a lower-cost operating model," he said.

On the product front, the plan calls for increased emphasis on CE and major appliances, which rank among the merchant's best performing categories. CE departments will garner more space, to be filled with a deeper assortment of digital products as Sears cuts back on commodity SKUs like VCRs and boom boxes.

In appliances, the company will add more opening price point models, curb the sales floor dominance of its private label Kenmore line in favor of more national brands, and will expand its new high-efficiency shop concept, which currently highlights laundry.

To cut costs, the company will eliminate 4,900 personnel, or 22 percent of the workforce, representing its biggest job cut in eight years. The cuts include about 1,300 headquarters jobs, or 19 percent of all employees based here, and 3,600 salaried positions from stores and regional offices.

Sears will also implement more efficient store and headquarters processes, and will streamline its supply chain by improving integration and order management, tightening inventory controls, and making better use of in-store space and outside storage.

The cut in sales associates reflects Sears' radical shift to a self-service environment within its stores. With the exception of high-ticket categories like major appliances and CE, where service will be stepped up, all departmental sales personnel will be eliminated and cashier desks will be moved to central locations.

The stores will also be remodeled "to eliminate the clutter and bring clarity," Lacy said. The simplified signage, fixtures and store layouts planned for all 860 full-line locations are designed to "create an easier shopping experience for our customers," he explained.

UBS Warburg retail analyst Aram Rubinson was relieved that Sears' strategy doesn't rest on predatory pricing. "The company's plan in hardlines continues to be led by a solid appliance program," he observed in a research note. "It remains committed to price and assortment integrity on that front.

"In more traditional consumer electronics," he continued, "Sears is updating its mix to be more digital. It believes CE is a core competency, but we did not hear anything worrisome (i.e. irrational pricing) on that front."